For medium and large enterprises in particular, onboarding a new vendor tends to be especially inefficient. Comprising numerous players and moving parts, the process is often characterized by delays and frustration.
In this two-part series, we’ll look at the three central challenges to vendor onboarding, examine who these challenges impact, and how to overcome them. Before we dive in, let’s quickly review what vendor onboarding is and how most companies handle it today.
What is vendor onboarding?
If you’re reading this, you probably already know that vendor onboarding is the process of registering a vendor in a company’s system so that the company can transact with that vendor. This process is specific to procurement, as it involves sourcing goods and services, not simply purchasing them. It’s also an important pillar of business spend management that should not be overlooked.
How does it fit into the greater P2P process? Several steps have to be taken before vendors come into play.
- Purchase requisiton – the purchase need has to be considered and approved
- Purchase order – approval of the PR will open a purchase order, or PO
- Vendor selection – to fulfill a PO, the right vendor must be inspected and chosen
- Vendor onboarding – after approving of the vendor selection, onboarding the vendor and all accompanying documents can begin.
- Invoices and payments – once the vendor fulfills the order, they send an invoice that gets approved by AP (or the finance team in smaller organizations) and payment can be delivered.
How do you onboard a new vendor? The vendor onboarding process includes a number of important steps involving different stakeholders and challenges. Before we examine them, it’s important to note that the vendor onboarding process differs depending on whether you’re onboarding indirect or direct vendors. While the main steps of the process remain the same, the duration of each stage is different. For example, if you’re onboarding a vendor for a one-time transaction for a non-strategic need (an indirect vendor), the business and legal stages should not take very long. However, if you’re onboarding a vendor who will be the sole provider of an important strategic service or good to the company (a direct vendor), the business and legal stages will most likely take longer.
To understand the main challenges surrounding vendor onboarding, let’s first take a look at the actual steps involved in onboarding a new vendor to the company.
The steps involved in vendor onboarding
Step 1. Typically, the vendor onboarding process, sometimes referred to as supplier onboarding, begins after the requestor’s purchase order has been opened, permission to onboard a new vendor has been granted, and the vendor they want to work with has been identified. This internal approval process often takes place over email and tends to be unstructured; it sometimes involves the requestor’s direct manager and other times it also involves a procurement manager. These managers must also determine whether or not the legal or security teams should be involved.
Step 2. With permission to onboard the vendor, it’s now time for the vendor to get officially onboarded to the company’s ERP system. For this to happen, the vendor completes a vendor onboarding form that includes general information (company name and address, company ID, tax withholding information, etc.); information about the vendor’s points of contact in the company (including their main POC, their finance POC, and the contact details for each); and financial information (default currency, bank account details, etc.). This stage of the process also involves different stakeholders in the company ensuring that the company can transact with the vendor from a legal, compliance, and security standpoint.
Step 3. Once the vendor submits this information, a member of the finance team at the company must ensure that the data is complete. With vendor onboarding forms typically including 50 or more fields, this stage often presents issues that must be sorted out with the vendor. Once the form is properly completed, the finance team must manually enter the information from the form into the company’s ERP system—a highly error-prone process that typically takes a long time. But once it’s completed, the vendor has been onboarded.
3 challenges in vendor onboarding
Now that we understand the overall steps involved in vendor onboarding, we can examine the main challenges companies most often face.
1: Employees don’t know which vendors the company is already working with
Larger companies often find themselves having way too many onboarded vendors for the same service or good. When a company has twenty vendors for the same thing—especially when that ‘thing’ doesn’t carry too much strategic value for the business—it’s clear that superfluous vendors have been onboarded when there’s already one working with the company that provides the service or good needed. This concept is referred to as having ‘duplicate vendors.’ Onboarding duplicate vendors not only wastes time, but could very likely cause you to end up paying more. When you have good vendor relationships you are able to better negotiate payment terms. Not working with the vendors you already know and love could end up costing you well into the future.
There are a few reasons why employees don’t know which vendors the company is already working with. For starters, the information lives in two different places:
- In the company’s ERP system, which the vast majority of employees don’t have access to
- In various spreadsheets that are managed by different employees in different departments, and which are oftentimes outdated
Because of this, employees don’t know where to turn to get updated vendor information. Without an easy way for employees to check which vendors the company is already working with, their next best option is to find and request that a new vendor be onboarded. The end result is a lot of wasted time when existing partnerships are already available to fulfil the same need.
2: Only the business POC has a direct line of communication with the vendor
Processes involving the vendor and a member of the finance team tend to have the vendor’s business POC sitting in the middle. This communication chain is highly inefficient when finance identifies an issue—for example, with the vendor onboarding form—that the vendor needs to address. While it would be much more efficient for finance and the vendor to work directly, opening that line of communication is also problematic. A direct line of communication with every vendor the company is working with can quickly overwhelm the finance team when they get flooded with emails pertaining to any question any vendor might have.
3: The vendor onboarding process lacks transparency
Limited visibility into which vendors the business already has relationships with is one thing. But there’s a second transparency issue that relates to the overall process of onboarding vendors, and the various “sub-processes” it entails. The fact that these processes take place in siloed systems is seriously limiting for the different parties involved. It prevents any one stakeholder from being able to easily understand where or with whom any specific process stands. It also prevents employees from being able to prepare for what’s in the pipeline, and from properly prioritizing their tasks. This lack of transparency also makes many of the people involved in the process blind to the underlying context in which the need for the vendor originally arose, leading to further inefficiencies.
Vendor onboarding is a crucial process that companies must manage in order to continue operating. But today, most medium- and large-sized companies are contending with an outdated approach to vendor onboarding that involves broken communication chains, unnecessary delays, and error-prone manual tasks.
Fortunately, there are tools available to help businesses contend with these challenges and transform vendor onboarding into a modernized, more efficient process that alleviates the burden for employees and vendors alike.
Who do vendor onboarding challenges impact most?
The challenges surrounding vendor onboarding make life at work difficult for:
- The employee. For the person who’s making the original request to work with a new vendor, the vendor onboarding experience is, more than anything, frustrating. Without a clear understanding of which vendors the company is already working with, there’s a good chance the employee is wasting a lot of his, as well as his colleagues’ time just by requesting to onboard a new vendor.
Assuming the employee’s request is approved, the lack of visibility into where the process stands further complicates matters. The employee needs this vendor urgently, and because of the disconnect between him, other employees, and each step of the process, delays are likely to occur. As if that weren’t enough, he doesn’t always know who to turn to for answers regarding where the process stands. This results in the employee bugging a lot of people in his attempt to get answers. Meanwhile, he’s getting bugged by the vendor who’s wondering what’s taking so long.
- The procurement manager. For the procurement manager, whose considerations regarding new vendors differ from those of the employee, the vendor onboarding process is strategic. One of the procurement manager’s main responsibilities is ensuring that the company conducts procurement in an effective and cost-conscious manner. She wants to ensure that ideal prices and terms have been reached before any new vendor is given the opportunity to get onboarded. Ideally, she gets involved in negotiations early on. However, with the storage of vendor-related information and communication with the business POC happening separately, she’s often brought into the process later in the game than she’d have liked. This then creates double the work when she needs to be brought up to speed, and when the employee needs to provide information about his vendor choice or renegotiate terms.
- The finance person. For Finance, vendor onboarding is time-consuming and error-prone. The work involved in manually uploading information from the vendor onboarding form into the company’s ERP often makes Finance the bottleneck of the entire process—especially considering that a standard vendor onboarding form consists of roughly 50 questions. More often than not, there’s an issue with at least one of these questions. This leaves the finance person needing to reach out to the vendor—whether directly or through the vendor’s business point of contact—in order to clear up any issues, sometimes weeks after the vendor originally filled out the onboarding form.
- The vendor. Of course, we shouldn’t leave out the vendor, for whom the typical onboarding process with a medium or large business feels largely defeating. The vendor is interested in generating a good relationship with the company. His aim is to complete any required forms as quickly as possible, and receive a PO number so that he’ll be able to invoice the company when the time comes. But the delays and lack of transparency he experiences as part of the company’s onboarding process give him the sense that the company isn’t entirely committed to forming a positive partnership with him. Moreover, since it’s so difficult for the company to onboard him, the vendor may get the impression that other processes (like getting paid) will also prove difficult. With this in mind, it might prove most worthwhile to increase prices when working with this company, or abandon the partnership altogether.
Overcoming vendor onboarding challenges
So, what makes a good vendor onboarding process? And what are vendor onboarding solutions?
For starters, businesses must achieve an up-to-date database of vendors. This is essential for achieving streamlined and informed vendor onboarding processes. With an updated vendor database, employees can easily discover for themselves whether there’s a true need for a new vendor to be onboarded. This helps minimize the likelihood that the company will spend resources onboarding multiple vendors for the same service or good. It also keeps the business working actively with those vendors they’ve already chosen to onboard, fueling engaged, positive partnerships. Finally, by consulting the vendor database and confirming the need for a new vendor before making the request to onboard one, employee requests become justified, thereby simplifying matters for the procurement manager. This is a major time and cost saver.
Once the employee has verified that the company isn’t already working with a vendor who provides the needed service or good, the need for the vendor must get approved by a procurement manager—before the vendor is invited to work with the company. Approving this need prior to the requestor contacting a vendor can be remedied by requiring the procurement manager to approve it first. This gets the procurement manager involved early in the process, and also gives the requestor an organized platform for explaining the vendor need, and why this specific vendor was chosen. With this type of approval process in place, the requestor and procurement manager understand that they are working toward a valid end goal.
Next, we want to digitize manual, error-prone processes. This includes the forms and agreements the vendor must complete, as well as the finance team’s process of entering the vendor’s data into the company’s ERP. Beyond offering vendors and finance employees a much more pleasant onboarding experience, moving toward digitized processes minimizes errors and saves time. It also enables businesses to more easily collect valuable business data from the vendor (such as other companies the vendor is working with) in order to enrich their vendor profiles.
Finally, all vendor onboarding-related processes and interactions must move out of emails and spreadsheets and into a centralized platform. Don’t let it sound daunting, an automated spend management tool can help your organization do this seamlessly. Approve.com for example, enables businesses to overcome the challenges that arise from relying on siloed systems for a comprehensive process like vendor onboarding.
Businesses interested in bypassing the hurdles of vendor onboarding should look to procurement platforms that centralize, digitize, and make transparent every part of the procurement process—equipping employees and vendors alike with the tools they need to achieve fast and efficient workflows. This modern approach to procurement and vendor onboarding enables every relevant party to easily understand where processes stand, and who’s responsible for completing the next step. Aligned with an organization’s ERP and other systems already in place, all data is synced and easily tracked.
Schedule a demo with Approve.com and discover how to simplify your organization’s procurement process today.